- Mining machines more than three years old are “going to really suffer” after the halving
- Carbon emissions from crypto mining “need to be thought about and need to be controlled”
- The “professionalization” of mining enterprises will kill amateur home mining
Argo Blockchain is a Canada-based mining company that has gone from a cloud mining service to a proprietary mining service, churning out 1,330 Bitcoin in 2019. They are a serious player too – the amount of mining hardware they operate increased by over 300% in 2019, and has increased another 157% since then, leaving them with 18,000 mining units to call on across their three sites.
With the Bitcoin halving rapidly approaching, FullyCrypto’s Mark Hunter spoke to Argo CEO Peter Wall to discuss the halving, the impact it will have on mining operations the world over, and where he sees crypto mining heading in the future.
The halving is not very far away now. How have you been preparing for it, and how far in advance do you have to start?
It’s hard to believe it’s only two weeks away! It’s something we’ve been preparing for for probably a year and a half in terms of strategy. It is going to have a major impact on the mining ecosystem, so it’s something that you’ve got to be ready for because it is such a big event.
We’ve been preparing for it since we pivoted away from mining as a service in early 2018, since when we have been building our mining infrastructure. We’ve really tried to build an infrastructure that is as efficient as possible, which means investing in a new generation of machines, starting with the arrival of the Antminer S17 and equivalents in 2019.
We’ve gone from 1,700 machines at the start of 2019 to 7,000 by the end of the year and we’ll be at 18,000 by the time our next shipment arrives next week. So it’s a big jump for us, but now 90 percent of our machines are the new generation of machines, which is really the only way to be prepared for the having. Technology that is three, four, five years old is going to really suffer because it’s just not efficient enough.
Is there any change on a day to day basis, or is it just something that you know is looming and you’ve got the mitigating factors baked in already?
In terms of what we’re trying to do now, it’s really optimizing the machines in the best possible way. So that’s just making sure that we have that ratio between power usage and hash power. And that’s something our technology team works on.
The other piece is we monitor difficulty levels and build models around what’s going to happen depending on how much hash rate drops off the network. We have an expectation that there’s going to be a drop in hash rate and in the short term, somewhere between 10-30 percent, because so many machines that are on the network now will no longer be profitable. They’re just going to have to come offline unless people want to mine themselves under water for a while. The chances of that are unlikely because unless there’s a huge run on the Bitcoin price, those machines are not are not going to be worth money.
China has historically dominated the Bitcoin mining market, but in the last few years there’s been a shift to a more Western influence. Do you think Chinese mining farms will take the biggest hit?
The short answer is I don’t know, because there’s so many miners out there that don’t have their information public. It’s very hard to get an accurate reading on what percentage of miners have old machines. We know it’s a significant number, but I wouldn’t underestimate Chinese miners. Lots of machines that have been produced in China in the last twelve months have been purchased by Chinese miners, so I don’t think it’s just going to be the Chinese miners [that take the hit from the halving].
There’s certainly lots of mines in North America that are going to have to come offline that people made big investments into in 2017 and 2018. And not just private folks – publicly traded companies have a lot of older technology that is going to have to come offline too. For example, the largest listed publicly traded miner right now is a listed company that has 107 megawatts of power running 952 petahash. So that is a petahash to megawatt ratio of 9/1. For every megawatt of power they’re getting nine petahash, whereas our machines and infrastructure, which has been built over the last twelve months, gives us a ratio of about 19/1. So we’re running about 700-720 petahash on about 35-40 megawatts of power. That’s the challenge for them, is having to pay for twice as much power to get the same amount of hashrate. And that’s that’s going to be difficult.
Is there anything else that yourselves or the other mining companies might be doing to try and limit the impacts of the halving?
I don’t think there’s much else you can do. You can try to renegotiate your power, or there’s talk of using older machine hardware and switching out the board or the chip or those kinds of things, trying to upgrade it without having to do a full change of all the hardware. But at the end of the day, technology doesn’t doesn’t stop for folks who aren’t efficient.
How well do you think the impact of the halving is understood both within the crypto community and the non crypto community?
I would say in the non-crypto community it’s not understood at all, or very little. I was talking to a financial analyst yesterday who kind of follows Bitcoin and had no idea about the halving. So I’d say not very well. There are financial analysts I’ve spoken to who follow Bitcoin closely who have a pretty good handle on what it means and kind of understand the relationship between difficulty and price.
In terms of within the community and what are people saying and what are people thinking? It’s such a diverse community now. There’s so many different kinds of traders and thinkers on it that you can kind of find whatever you want to find out there on how you think it’s going to impact.
The main talking points that are coming up from most folks in the community is that it’s going to a catalyst for a bull run again. We’re trying to avoid predicting a number. What we’re trying to do is just prepare for all eventualities and particularly trying to understand as much as we can the ratio between difficulty and price.
What can you tell me about your operations in terms of renewable energy? Is it something that you are actively focused on when deciding new locations?
It’s certainly something we’re very supportive of, and it’s one of the reasons that we’re happy to have so many machines in Quebec because [the site] runs on hydropower. It’s certainly something that people in the industry are talking about and aware of – carbon emissions from crypto mining need to be thought about and need to be controlled and need to be a factor in decision making.
That being said, there’s lots of people who really look at the bottom line, from both investors and crypto mining companies, and they are more focused on the bottom line than on carbon emissions. But I think it’s a trend – I think the trend is in the right direction. And I think the fact that we’re talking about it, that you’re asking me about it, I think it’s a good thing.
How do you think the mining industry will have changed by the time of the next halving in 2024?
I think the trends that I’m seeing are more professionalization, larger facilities, better understanding of how to optimize machines, and longer term thinking as opposed to just trying to throw up a bunch of machines. When we first started setting up our facility in early 2018, some of the people that I was talking to about helping us build it out were just backyard hackers who were throwing up rigs for any guys who had $50-$100,000 lying around and trying to get rich! I think those days are gone.
I expect four years from now we’ll be in an even more professional environment than we are now. I also think that mining companies will probably be a little bit more diverse and not just be doing proof of work mining but also some staking or some other kind of non Proof-of-Work functions as part of their operations.
What do you make of the fact that you’ve got companies like Binance, OKEx, and Huobi joining the mining space with their mining pool services?
I think it’s an interesting development. I think it shows, again, the movement towards the professionalization of mining, which is certainly a trend that we see in North America. There’s some consolidation that’s happening. It’s becoming more of a business and less of a bunch of guys who are getting together and putting some machines up into a space. And that can only be a good thing.
Do you think we are seeing the start of the end of amatuer home mining?
I would say we are, if we haven’t already. I haven’t seen the level of interest out there for home mining that there was a year ago, or two years ago. I think there’s obviously some people still doing it, but I think it’s becoming more and more difficult to do.
We’re lucky. We have a really strong technical technical team that, as far as I’m concerned, is the best around. They are constantly thinking about how we can optimize our machines, [getting] the best ratio between power and hashrate and all of those factors. You basically need a PhD in a number of different subjects to be able to get it done right.
There’s some really interesting specialization that’s coming out around software, around firmware, around the optimization of machines and the monitoring machines. It’s still such a new industry that there’s lots of room for growth, for understanding. And I see it within our own team – the leaps and bounds that we’ve made in two years has been really enormous.
What’s your gut instinct as to how Bitcoin and cryptocurrency in general will react to what seems like will be a year or two of very difficult economic circumstances?
Bitcoin bent but didn’t break when everything kind of seemed to be falling apart a month ago. Since then it’s been coming back in a really methodical, responsible way. Just building. You don’t want it to go up too fast because then it just doesn’t seem smart. But the way in which it’s responded I think has been really encouraging.
When we went public in August of 2018 Bitcoin was about the same price as it is now, within a thousand two thousand dollars. So think about all of that pent up demand that’s out there, all of that activity that’s happening around it. I think within the next year or two it’s poised for a really healthy run. But I’m not going to make any predictions about where or when it’s going to or how fast it’s going to go.
We’re cautiously optimistic for 2020.
Argo Blockchain seems well placed to deal with the impact of the 2020 halving, and Peter’s cautious optimism will be music to the ears of Bitcoin bulls everywhere. Mining companies the world over will take a hit when the halving happens in two weeks, and Argo’s investors will be hoping that Peter and his team have got their sums right when it comes to staying active in the space.